The NBS Manufacturing PMI missed market expectations and dropped to a five-month low of 48.8 in May 2023 from 49.2 in April. The most recent data indicated that manufacturing activity had decreased for a second month in a row due to weak domestic and international demand. For the first time in four months, output decreased (49.6 vs. 50.2 in April), while new orders (48.3 vs. 48.8), purchasing activity (49.0 vs. 49.1), and export sales (47.2 vs. 47.6) also declined quicker. For the third consecutive month, employment decreased (48.4 vs. 48.8). Delivery time was also marginally decreased (50.5 vs. 50.3). On the price front, output charges decreased for the third consecutive month, while input costs decreased at the highest rate since last July (40.8 vs 46.4).

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United States Debt Deal

As a result of the expectation that Congress will approve the debt deal, the yield on the US 10-year Treasury note dropped to 3.73% from 3.85% the previous week. In a late-Saturday phone chat, House Speaker McCarthy and President Biden came to a tentative agreement. Federal expenditure will be limited for the following two years, and the debt ceiling will be suspended until January 1, 2025. Before it advances to the Senate, the House will probably vote on it on Wednesday. The 4-week bill fell to below 5.5% as yields on shorter-maturity bonds, which have a larger default risk, continued to tumble from recent highs.

Traders are also anticipating important economic data due this week.

Such as the JOLTS, the ISM Manufacturing PMI, and the payrolls report. All of which will affect interest rates, USD, United States Debt deal and most assets you may be invested in.

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US Inflation

The Federal Reserve’s hawkish signals and increased optimism regarding the debt ceiling negotiations supported the dollar index’s recent gain to approximately 103.5 today, which is hovering at its highest level in two months. The dollar index has also risen by roughly 0.8% so far this week. It is expected to continue rising this week. Investors held out optimism that a deal would be made to raise the US debt ceiling in order to prevent a default. On Thursday, two Fed members stated that the US inflation does not appear to be slowing down quickly enough to allow the central bank to stop raising interest rates. The likelihood that the Fed will announce another 25 basis point raise next month is now estimated by the markets to be roughly 40%.

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Lots of data coming up that will affect US Inflation

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Japan trade balance

From JPY 854.9 billion in April 2022 to JPY 432.4 billion in April 2023, Japan trade balance decreased, falling short of market estimates of a JPY 613.8 billion deficit. The series of 21 months without a trade surplus was the longest since 2015. Exports increased by 2.6% year over year at JPY 8,288.4 billion, marking the 26th consecutive month of growth but the slowest rate since a decline in February 2021. In the meantime, imports fell for the first time in 27 months. Falling 2.3% to JPY 8,720.8 billion, as expenses were decreased by a stronger yen and falling commodity prices, notably oil. source: Ministry of Finance, Japan

How to make money from Japan trade Balance this data? Where is USD/JPY going to move next?

This is what to look out for this week. Pay close attention to Japanese inflation data and Fed Chair Powell’s speech on Friday.

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European equity markets

In anticipation of a compromise between US President Joe Biden and congressional leaders to lift the US debt ceiling and prevent a default, European equity markets were set to open higher on Thursday, extending a global surge. However, investors anticipate earnings announcements from companies including Vantage Towers, BT Group, Burberry, EasyJet, and Premier Foods among others. In the meanwhile, there are no significant economic releases in Europe. While FTSE 100 futures wavered around the flatline in premarket activity, DAX and Stoxx 600 futures both increased by roughly 0.4%.

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As it continues to fight double-digit inflation, the Bank of England is anticipated to hike the United Kingdom interest rate by 25 basis points to 4.5% in May 2023. This will be the eleventh consecutive rate increase and drive borrowing rates to new highs not seen since 2008. In March, the UK’s annual inflation rate was 10.1%, which is five times greater than the 2% target set by the central bank. Investors will be keenly monitoring the central bank’s future plans to determine whether decision-makers plan to soon cease the tightening cycle or continue raising rates. The BoE will also release its quarterly economic estimates, and most investors believe that the GDP and inflation will be revised higher in 2023. Source: Bank of England

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In March 2023, Germany industrial production fell 3.4% month-over-month, reversing a 2.1% increase in February that had been upwardly corrected, and worse than the 1.3% decline predicted by the market. The manufacturing of motor vehicles and their components fell 6.5%, following a 6.9% increase in February, making the automotive industry the biggest drag. Construction (-4.6%), manufacturing of machinery and equipment (-3.4%), and the production of capital goods (-4.4%), intermediate goods (-3.5%), and consumer goods (-0.1%) all experienced declines. But energy output increased by 0.8%. Industrial output decreased 3.3% when construction and energy were excluded. Production in Q1 2023 was 2.5% greater than it was in the previous quarter. Source: Federal Statistical Office

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Biden polls behind Trump (45-38%) & DeSantis (42-37%) in head-to-head matchups, although there are large numbers of undecided voters. >60% of Americans think Biden does not have the physical stamina to serve effectively as president.

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The ISM Services PMI increased to 51.9 in April of 2023 from 51.2 in March, and slightly higher than market expectations of 51.8. It marks a fourth consecutive month of growth in the services sector, prompted by a faster increase in new orders (56.1 vs 52.2), a rebound in new export orders (60.9 vs 43.7) and one of the fastest supplier delivery performance since December 2015 (48.6 vs 45.8) due to ongoing improvements in both capacity and supply logistics.

On the other hand, production rose at the slowest pace since May 2020 (52 vs 55.4) and employment growth also slowed (50.8 vs 51.3). Meanwhile, price pressures were slightly higher (59.6 vs 59.5) and backlog of orders fell less (49.7 vs 48.5). “The majority of respondents are mostly positive about business conditions; however, some respondents are wary of potential headwinds associated with inflation and an economic slowdown”, Anthony Nieves, Chair of the ISM Services Business Survey Committee said. source: Institute for Supply Management